Switching costs of customers

Switching costs of customers from one telecommunication services company package to another company’s package is low because the bargaining power of buyer is high and the services provided between the companies are similar. Therefore, a customer can easily switch to a different telecommunication services company. As relational switching costs represent a barrier to exit from the relationship, they can be expected to increase the relationship commitment. Due to the development, mobile phone became a necessity rather than a luxury for the people today. There is a large demand of the mobile phone services as there are approximately 22.7 million subscribers in Australia, (Australian telecommunications report 2009, 5).

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Subscribers can be separated into two segmentations, prepaid and contract. Contract constituted the larger volume of the market which was 51. 7% and the remaining was prepaid, (Australia Mobile Phone Services 2008, 5). Customers who are likely to seek information are empowered customers, (Samson and daft 2009, 267). In the mobile phone service industry, (Worthington and Britton 2006, 363) stated that “easy availability of information on handset prices and network operators means that it is easy to shop around for the best deal.

” Instead of using mobile phone service, people might have other substitutes. For example, the use of landlines which are installed into houses or social network sites such as Facebook and My Space. However, the most common substitute for mobile phone services are instant messaging programs such as Windows Live Messenger. This is because by using instant messaging programs, people can not only chat with others, but also use audio and video calls to communicate, (Four ways to survive without a mobile phone, n. d).

The bargaining power of buyers in the telecommunications industry is likely to be high because there is a large volume of buyers. Although there are some substitutes for mobile phone services, the most convenient way to contact others immediately is still by using mobile phones. For example, if a person needs to communicate with his friend or family urgently, a mobile phone would be the first thing that he would turn to. Also the products of telecommunication industry are undifferentiated. As a result, price becomes the purchasing decision for mobile phone services.

Under the Telecommunication Act 1997, a company can choose to be a mobile phone service provider. In order to be a provider in a specific country, companies must apply for the carrier license, (Carrier and service provider requirement 2009). Telstra is an example of a carrier license holder in Australia, (Australia telecommunication report 2009, 45). Besides that, the company can choose to be the carrier service provider which is a company that provides services by using the network unit of the carrier. (Carrier and service provider requirement 2009. ).

For example, Millar Ltd can choose to ask Telstra to provide a network for them to provide the mobile phone service to the public. Besides the network supplier, hardware sectors are also important. Hardware sectors are the suppliers that provide handsets to service providers. There are three major providers of infrastructure which are Ericsson, Nokia and Nortel (Australian mobile telecommunications industry 2005, 7). The bargaining power of the suppliers in the telecommunications industry is high because there is only one major provider of network unit to maintain the network in mobile phone service industry.

As a result, in order to get the network from the carrier, Millar had to pay the amount requested. The bargaining power of the hardware sector is also high because, although there are many handset providing companies, consumers will focus on the popular mobile phone brands such as Nokia, (Worthington and Britton 2006, 364). The rivalry in the Australia telecommunication industry is considered intense as that there are about 31 mobile service providers currently operating, (Australian Communications and Media Authority, 2007).

New technology everyday is creating more substitutes for the service and this tends to drive industry profitability down. The industry also suffers from high exit barriers. Networks and billing systems and their swift obsolescence makes liquidation difficult, (The Industry Handbook – The Telecommunications Industry, 2007) The mobile service industry in Australia can be considered as a consolidated industry because there are only a small number of large companies providing mobile service in Australia. (Australian Communications and Media Authority, 2007).

In 2004-05, the Australian mobile telecommunications industry had more than 16 million subscribers, representing approximately 81 per cent of the Australian population. This mobile penetration rate is forecasted to exceed 94 per cent in 2005-06. On top of that, the mobile telecommunication industry revenue for 2004-05 was $9. 9 billion and estimates suggest that it will be $11. 9 billion in 2005-06. This shows that with this kind of revenue and such high penetration rate, the competition among the companies in the industry is getting stronger because the market is getting smaller. (The Allen Consulting Group, 2005) .